Investment management

ABSTRACT

Data processing for novel form of relationship management links, supervises, and balances depositors, marketing agents, financial intermediaries, mortgage brokers, and borrowers in an inflation-adjusted financing program. Funds are deposited in participating financial institutions in return for certificates of deposit yielding a fixed rate of interest, plus principal growth at a yearly rate equal to that year&#39;s rate of growth in the Consumer Price Index-All Urban Consumers, All Items. Funds on deposit are loaned to borrower, either directly or through brokers, at a rate calculated by adding three components: a fixed debt service rate, a fixed constant interest rate, and an inflation factor interest rate which reflects the effects of inflation on the outstanding loan balance. Organizing company sychronizes entire program by contacting depositors through marketing agent, designating institutions to receive depositors&#39; funds, contacting borrowers directly or through brokers, and by supplying data processing capabilitites to financial intermediaries for purposes of impletation of the program and for analysis of the effects of the program on the intermediaries&#39; capital structures.

This is a continuation of application Ser. No. 07/780,834 filed Oct. 23,1991, now U.S. Pat. No. 5,832,461, which is a continuation of nowabandoned application Ser. No. 07/187,054, filed Apr. 27, 1988, nowabandoned, which is a continuation of Ser. No. 06/770,493, filed Aug.27, 1985, which issued as U.S. Pat. No. 4,742,457 on May 3, 1988.

BACKGROUND OF THE INVENTION

1. Field of the Invention

This invention relates to financial management systems and, morespecifically, to data processing methodology for effecting an improvedcapital structure in financial institutions.

2. Description of the Prior Art

A number of financial management systems have been proposed in the past.Exemplary systems include U.S. Pat. Nos. 4,194,242; 4,232,367;4,321,672; 4,346,442 and 4,376,978. However, such prior systems addresssubstantially different problems and accordingly, are substantiallydifferent from the inflation-adjusting program of the present invention.

During times of inflation, lenders and borrowers, whether they beinstitutions or individuals, must anticipate what the effects ofinflation will be on the cash flow characteristics of a loan. Investorsface a similar uncertainty. Traditionally, lenders compensate for thisuncertainty by including a premium in the interest rate charged on theloan. This premium represents what the lender feels will be the level ofinflation during the term of the loan.

Loans which include a fixed inflation compensation factor are not immuneto the effects of inflation. For example, when a lender anticipates a 6%annual inflation over the life of a loan and the actual averageinflation turns out to be 10%, the lender has realized a 4% annual lossin terms of real dollars. In addition, standard-fixed-payments loans("SFPM's") exhibit a progressive decline with time in terms of the flowof real dollars leading to a real-payment forward "tilt" characterizedby a much greater equity accumulation during the early years of anextended loan. Conventional SFPM's are particularly burdensome in aninflationary environment in that they fail to account for appreciationof the mortgaged property.

In an attempt to compensate for such an eventuality, some lenders haveoffered loans or mortgages which include a floating interest factor thatis periodically varied in some manner to compensate for the effects ofinflation. One such alternative mortgage instrument is the adjustablerate mortgage, or "ARM", which allows for periodic adjustment ofpayments to compensate for what the lender feels will be theinflationary effect on the loan during the upcoming period. For example,a typical ARM is indexed to a standard interest rate such as aparticular bank's prime rate or six-month Treasury bill average.However, due to the fact that ARM's still reflect the market's"expectation" of the inflation rate, their inflation premiums may stillnot reflect the actual rate of inflation.

Two mortgage loan instruments which are directly indexed to inflationhave been offered on a limited basis. One such instrument is theprice-level adjusted mortgage, or "PLAM," whose mortgage balance isperiodically adjusted to account for the effects of inflation during theinterval since the previous adjustment. PLAM's have generally beenindexed to one of the various consumer price indexes. Such indexing ofthe PLAM loan balance results in the deferral and capitalization ofadditional interest. The resulting PLAM loan serves to even out equityaccumulation during the life of the mortgage in contrast to SFPM's.

Another indexed mortgage instrument is the "modified" PLAM whichcombines some aspects of the traditional fixed rate mortgage with thoseof the PLAM. In particular, the modified PLAM has a fixed interest ratewhich includes a specified inflation factor and, in addition, has avariable interest rate which will compensate the lender for inflationover and above the specified inflation factor.

Inflation-indexed loan instruments have advantages in that inflationrisk to the lender is minimized. For example, with SFPM's during periodsof inflation, the borrower realizes a windfall in terms of actualdollars where the loan rate is based on a low level of anticipatedinflation. Converselly, the lender has suffered a loss in terms of realdollars. Inflation indexed loans serve to solve this problem. However,the borrower under such instruments still faces much uncertainty: wheninflation spirals, so do the loan payments. If inflation operatessimilarly on the mortgaged or secured property, there is no loss interms of real dollars. However, if the value of the property securingthe loan does not inflate at the same rate as the loan balance, there ispotentially an inflation loss.

Such problems have in the past prevented large-volume or commercialborrowers from taking advantage of inflation-indexed loans. That is, theuncertainty over whether the return on inflation-indexed borrowed fundswhich have been reinvested, will compensate for the "cost" of thosefunds. This problem of unbalanced investments and loans is seen mostaccutely where one wishes to invest in a manner that will assure aninflation-adjusted return on the investment. One answer would be forinstitutions to accept investment capital into deposit accounts whichinsure an inflation-adjusted return on the deposited funds. However, therisk to the lending institution is clear: such inflation-adjusteddeposit accounts must in some manner be backed by inflation-adjusteddollars. Equally important, institutions engaged in lending andborrowing funds require the ability to match funds which have beenobtained on an inflation-indexed basis with some similary indexed fundswhich are lent out. Moreover, such institutions require the ability toassess the impact of inflation-adjusted deposit and loan accounts ontheir capital structure.

Accordingly, the present invention addresses these problems by providinga system for implementing inflation indexed deposit accounts, formatching such accounts with similarly indexed loan accounts and foranticipating the effects of these accounts on the existing capitalstructures of the institution or investor.

SUMMARY OF THE INVENTION

The foregoing and other problems of the prior art are solved by thesystem of the present invention which institutes inflation-adjusteddeposit and loan accounts and matches such accounts to provide animproved capital structure for a financial institution. The systemprojects the impact of inflation-indexed deposit and loan accounts onthe institution's capital structure for preselected or anticipatedinflationary environments. Based on such projections and other generalconsiderations, one of several forms of deposit accounts is selectedaccording to the requisites of the depositor or borrower and those ofthe institution.

As contemplated under the present invention, the accounts arecharacterized by a principal component and an accrual component.Principal component is that proportion of the overall account balanceattributable to the initial cash investment. The accrual componentindicates that proportion of the overall account balance attributable toinflation and fixed interest. The account components are periodicallyenhanced or reduced in a manner specified by the characteristics of theparticular account selected.

The accrual component will generally include both a fixed interestcomponent and a variable interest component with the variable interestcomponent being responsive to the rate of inflation. Responsive to therate of inflation, as used herein, means directly responsive to a marketindicator of prior actual inflation as it is not meant to include themarket's expectation of future inflation. Under one alternative, theprincipal component is enhanced by the variable interest component andthe account retired by retiring the fixed interest component by oneschedule and retiring the principal component by a second schedule.However, the account may be retired by retiring both components over asimilar schedule or by amortization. By varying the manner in which eachrespective component is accrued or retired, the cash flowcharacteristics of the account can be significantly altered to fit therequisites of the individual or institution. Cash flow is defined as theoverall flow of cash units from the account, or a selected accountcomponent, to the account holder who will either be the lender ordepositor, at a specified time.

Since the accrual component of either loan or deposit accounts may beadjusted in response to inflation, they can potentially exhibitunfavorable cash flows. Therefore, it is generally desirable to matchloan accounts with deposit accounts, and further generally desirable tomatch accounts with similar intrinsic cash flow characteristics asspecified by their accrual and retirement features. In this manner, cashflow patterns of the loan account would mirror those of the matcheddeposit account. Thus, during times of inflation, for example, negativecash flows attributable to outgoing retirement payments on depositaccounts will be compensated for by incoming payments on loan accounts.

Once the appropriate form of deposit and loan accounts are selected,matched and placed with the institution, data processing is utilized toservice them during their respective terms. As referred to herein, theaccount term is the time period over which the account is retired or"paid out" to the account holder. The account term is generally dividedinto a plurality of adjustment or iteration periods, however, terms maybe scheduled to include only a single iteration. Servicing includes thedetermination of inflation adjustments to the account balance or,alternatively, the inflation premium due the account holder. Servicingalso includes features which protect the principal or balance of theaccounts from the effects of deflation and reports all bookable incometo holder.

Servicing further includes data processing for retiring and enhancingthe accounts according to their respective terms and schedules.Retirement is meant to include a reduction in the particular accountcomponent and enhancement is meant to include an increase or accrual ofthe particular account component. For example, accrual components may beretired separately from the principal component by selecting separateschedules for each. Thus, for example, the principal may be retiredsemi-anually and the accrual retired annually. Schedules may be selectedwhich adjust particular components by a predetermined amount.Alternatively, account components may be retired by amortization.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is an overall schematic view of the inflation-adjusting accountmanagement system of the present invention;

FIG. 2 is a flow diagram of the steps for servicing Group I deposit orloan accounts;

FIG. 3 is a flow diagram of the steps for servicing Group II deposit orloan accounts;

FIG. 4 is a flow diagram of the steps for servicing Group IV deposit orloan accounts;

FIG. 5 is a schematic view of the deposit/loan matching process;

FIG. 6 is a graphic display of year-end balances and adjustmentamortization of a typical Group IV Deposit Account;

FIG. 7 depicts the total principal and interest payments on thehypothetical Group IV deposit account of FIG. 6;

FIG. 8 is a graphic display of the bookable income components of thehypothetical Group IV deposit account of FIG. 6;

FIG. 9 graphically compares the cash flows generated by a Group IVdeposit account assuming a steady 8% inflation rate with the sameaccount assuming a steady 6% inflation rate; and

FIG. 10 is a graphic display of the buildup of positive cash flow froman original $100 Group IV deposit account as a standard-fixed-paymentloan.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

The System

Referring now to FIG. 1, there is shown in overall scope an operationalflow chart for implementing the deposit/loan inflation-adjusting systemof the present invention. As therein depicted, the broad aspects of thesystem include an inflation-adjusted deposit account 2, aninflation-adjusted loan account 4, an intermediary institution 6 and anaccount management dataprocessor 8.

In the most basic embodiment of the present invention, the intermediaryinstitution 6 receives deposited funds in deposit accounts 2 and lendsfunds through loan accounts 4. Retirement of these inflation-adjustedaccounts are implemented by account management dataprocessor 8. Suchdata processing services the inflation-adjusting accounts in a number ofways, including the determination of their cash flow characteristics inchanging inflationary environments and determining the anticipatedeffects of inflation on the account balance. Characteristics of theindividual accounts are tailored to meet the needs of the particulardepositor.

However, as illustrated in FIG. 1, the system of the present inventionneed not be limited to the three above mentioned fundamental aspects. Ina preferred embodiment, an organizing company 10 acts as a synchronizerby contacting depositors 12 through intermediary 6 or through amarketing agent 14, for example, a pension fund manager. Depositorcharacteristics are listed on a Deposit Funds Available Data File 16("DFADF"), wherein characteristics listed include a depositoridentifier, the amount of funds available, the term of the account, theduration of the account, the type of account and the account retirementschedule. The amount of funds available is the total amount of fundssought to be deposited by the depositor. The term of the account is thelength of time from the initial deposit until maturity (i.e., when theaccount has been entirely retired). The duration of the account,explained more fully below, is a mathematical expression of when theaverage time-weighted dollar is paid out of the account. The type ofaccount, also explained in greater detail below, represents theparticular accrual and retirement features of the deposit account. Theretirement schedule refers to the timing of the iteration or paybackperiods and may include a predetermined retirement amount whereappropriate.

Characteristics of borrowers 18 are similarly listed in a Loan FundsDesired Data File 20 ("LFDDF"), which includes the amount of fundssought to be borrowed, the term of years for which the funds aredesired, the duration of the loan account, the type of loan account andthe loan account retirement schedule. Additional parameters such ascredit rating of the borrower or capacity of the lenders are generallyincluded in the LFDDF or DFADF. Capacity represents the total funds thelending institution may wish to devote to particular categories of loantransactions, for example, commercial development loans.

Data processing capabilities are supplied for displaying and choosingthe particular inflation-indexed account characteristics and forservicing the accounts once installed. Organizing company 10 may alsoact as a matching agent to receive deposit commitments from depositors12 or marketing agent 14 and place such commitments with intermediary 6that may require inflation-indexed deposit funds to back similarlyindexed mortgage loans. Again, intermediary 6 acts as the actual conduitfor the passage of funds but may rely on organizer 10 to match indexeddeposit contributors with borrowers and/or to service accounts 2,4 oncethey are installed.

Servicing the Accounts

In general, four basic types of accounts, represented by thedesignations Group I, II, III or IV, are contemplated under the presentinvention. These accounts vary in terms of their cash flow, principalrepayment and interest accrual characteristics. They can becharacterized as having a principal component, which initiallyrepresents the sum deposited or loaned, and an accrual component, whichrepresents that portion of the balance that is attributable to theeffects of interest, servicing fees and inflation on the principal.However, the accounts of the present invention may vary in terms of howand to what extent interest accrues, whether the interest is "payed out"or reinvested into the overall account balance, and how the account isretired over a selected term.

In their most basic embodiment, Group I accounts include those accountswherein the fixed-interest and inflation-adjusted interest componentsare retired as they accrue. In Group II accounts, both the fixed andadjustable components are retained as principal and thus add to theoverall account balance. In Group III and IV accounts, the fixedinterest component is payed out as it accrues and the adjustablecomponent is added to account balance. Group III and IV accounts differin that Group IV accounts are retired by amortizing the account balanceat each iteration period whereas Group III accounts are retired by apredetermined portion at each iteration period with the remainingbalance being retired at the final iteration.

Referring to FIG. 2, is shown a flow chart, adaptable to dataprocessing, for servicing what are referred to herein as Group I depositor loan accounts. Group I accounts are characterized by a non-adjustedprincipal which is retired over a series of predetermined intervals oriterations. Alternatively, the principal may be retired in one lump sumpayment at maturity. Because Group I accounts do not have adjustedprincipals, their accrual components are also retired at predeterminedintervals over the life or term of the accounts. As with the principalretirement, the accrual component may be retired in one lump sum paymentat the end of the term. Alternatively, the accrual retirement may bescheduled in a separate fashion from the principal retirement.

Generally, the Group I principal retirement schedule will consist of theretirement of the entire principal at the end of the term of theinstrument. The accrual component, on the other hand, is retired as itaccrues at each iteration period, and does not accumulate or enhance theprincipal. This results in an instrument having cash flows closelyresembling those of a "conventional" certificate of deposit or bond("conventional" referring to payment of a fixed rate of interest) withthe difference that accrual payments will vary with the rate ofinflation. Therefore, the cash flow characteristics of Group I accountscan be characterized generally as low during the term of the instument,with a large payment at the end. However, other principal retirementschedules are possible within the Group I framework, and cash flowscould be accelerated through earlier payments of a portion of theprincipal.

As displayed in the flow diagram of FIG. 2, Group I accounts areserviced by first ascertaining, for example from DFADF or LFDDF, theinitial balance, the fixed interest rate to be paid, the inflation indexat the time of the deposit or loan, the total number of iterations oradjustment periods, and the schedules by which the principal and accrualcomponents are to be retired. Proceeding through the flow diagram, thefirst operator, Ir=Ir-1, serves as a counter to determine the number ofiterations remaining in the scheduled account term. The amount of theprincipal to be retired by cash disbursement to the account holder isdetermined by reference to the schedule. Once the current inflationindex (CPIc) is determined, the level of inflation since the lastreporting period is estimated by consideration of a preselectedinflation index which reflects prior actual inflation. A preferredembodiment of the present invention utilizes the consumer price indexCPI-U, for all items. However, any number of indexes may be successfullyutilized including, but not limited to CPI-W, Producer Price Index, theImplicit Price Deflator for the Gross National Product, or any componentof these price level measures so long as the index reflects some measureof past inflation. The level inflation which has occurred since theprevious iteration period can be determined by the formula: ##EQU1##Where CPIo id the inflation index at the time of the last iteration, orthe initial index if the present iteration is the first.

The account servicing scheme makes the determination as to whetherdeflation has in fact taken place since the previous reporting period oriteration period. This test serves to protect against a possiblenegative cash flow which could result during deflationary periods. Ifdeflation has taken place, no adjustment is made to the balance inresponse to the deflation, rather, deflation credits are stored andsubsequently retired when inflation returns. Deflation credit isaccumulated with deflation credit from prior iteration periods, if any,in the form of cumulative deflation credit ("CDC").

If, alternatively, inflation has occurred during the prior iterationperiod, the cash outflow or disbursement attributable to the effects ofinflation on the account balance is determined by applying the inflationrate to the deposit balance. If the cumulative deflation credit isgreater than the inflation disbursement, the CDC is reduced by thatamount and the accrual disbursement to depositors is determined byapplying the fixed interest rate to the principal.

If the CDC value is less than or equal to the calculated inflationdisbursement factor, the disbursement factor is reduced in porportion tothe CDC, if any, and the CDC set to zero. Accrual repayment isdetermined by applying the fixed interest rate to the balance and addingthe product to the inflation disbursement factor. The account balance isadjusted to reflect both the principal and accrual retirement. Followinga test to determine whether any iteration periods remain, the initialCPI (CPIo) is reset to equal the current CPI (CPIc), to allow forinflation rate determination at the next cycle.

Group II deposit accounts are characterized by a principal componentthat is enhanced by the accrual component. Thus, principal growth isobserved on the one hand and the account is retired by retiring only theprincipal. Since all inflation and interest adjustments on the accountserve to enhance the principal, only one schedule of retirement isrequired. Group II accounts will generally demonstrate cash flows whichdo not react as quickly to rising inflation as those of Group Iaccounts. This is due to the fact that the accrual component of Group IIaccounts are not necessarily paid out in their entirety at eachiteration period as in Group I accounts. Rather, the accrual is retainedas principal and retired by a preselected schedule, for example, byretiring a predetermined portion at each iteration period. This resultsin a straight-line reduction of the account balance during the accountterm followed by a lump sum payment of the remaining balance atmaturity. Alternatively, a schedule may be selected where the entireaccount is retired by one lump sum payment at maturity with nointervening retirements.

Referring now to FIG. 3, is shown a flow chart for servicing Group IIaccounts. As with Group I accounts, the parameters of initial accountbalance, fixed interest rate to be charged, the initial inflation index(CPIo), number of iteration periods, and account retirement schedulesare supplied. The amount of principal to be retired is then determinedby reference to the schedule. This amount is disbursed to the accountholder.

The inflation rate is estimated and tested for deflation. If deflationhas taken place, deflation credit is calculated and accumulated. If,alternatively, inflation has occurred, the amount of principaladjustment is determined by determining the product of the inflationrate and the account balance prior to the present retirement. Fixedadjustment is represented by the product of the fixed interest rate andthe balance. When the cumulative deflation credit (CDC) is greater thanthe inflation adjustment for any given iteration period, the CDC isreduced in proportion to the inflation adjustment and the accountbalance adjusted to reflect the principal retirement and enhanced toreflect the fixed adjustment.

Alternatively, when the inflation adjustment is higher than the CDC, theinflation adjustment is reduced in proportion to the CDC and the CDCreset to zero. Balance adjustment is accomplished by reducing thebalance in proportion to the principal repayment and enhanced inproportion to fixed and inflation adjustment. Although under Group IIaccounts, actual cash flow consists of the principal retirement,"bookable" cash flow is represented by both principal retirement andinflation and fixed adjustments to the principal. Thus, this "bookable"inflation adjustment factor is reported to the account holder orborrower for, for example, income tax purposes.

Group III and IV accounts are characterized by an accrual component thatis divided into a fixed interest component and a variable interestcomponent with the variable component being responsive to inflation. Forboth Group III and IV accounts, the fixed interest component may beviewed as a part of the depositor's interest on the balance, and retiredby a preselected schedule over the term of the deposit or byamortization. However, the variable interest component serves to enhancethe principal and therefore represents a deferral and capitalization ofinterest into the principal. Therefore, principal growth is observed.

Group III and IV accounts differ in terms of how their respectiveadjusted principals are retired. In Group III deposits, the principal isretired by a preselected schedule over the term. Alternatively Group IVaccounts have principals which are retired by amortization. FIG. 4 isillustrative of the mechanics of Group IV accounts. As depicted therein,Group IV accounts are serviced by first determining the preliminaryseries of variables: the amount of the initial deposit, the fixedinterest rate to be paid, the inflation index at the time of the deposit(CPIo), the total number of iterations or adjustment periods (Ir) andthe retirement schedule.

Proceeding through the flow chart of FIG. 4, as with the previousaccounts the first operator counts the number of iterations remaining inthe scheduled account term. The account balance amortization iscalculated to determine that portion of the principal to be retired atthat iteration period. In particular, amortization of the balance isachieved using the formula: ##EQU2## where: R is the payment due theaccount holder;

A is the amount of the balance to be amortized; and

PVIF is defined as ##EQU3## where N is the number of iteration periodsremaining +1, and i is the fixed interest rate

The fixed interest component is calculated by applying the fixedinterest rate to the account balance. Once determined, fixed interestcomponent is generally retired during the present iteration bydisbursement to the account holder. Alternatively, the fixed componentmay be withheld for later retirement, depending upon the requirements ofthe particular schedule.

The inflation rate is estimated and tested for deflation. With Group IVaccounts, during times of deflation, one would expect a diminishment ofthe balance in proportion to the resultant increase in "real" dollars ondeposit. However, the present system avoids this diminishment by storingdeflationary units in the form of deflation credit. As with theforegoing account groups, deflation credit is cumulated, reserved andnot applied against the account balance until inflation resumes to asufficient level to counter it.

Thus, when the inflation adjustment is greater than the CDC, the accountbalance is reduced in proportion to the principal retired and enhancedin proportion to the level of inflation. If deflation credit hasaccumulated to a greater extent than the inflation adjustment during theprior iteration period, the balance is reduced only in proportion to theprincipal retirement. Once a new balance is established, the iterationcycle is completed by testing whether the present cycle represents thefinal iteration period and, if not, by setting the index level of thepresent cycle equal to the initial index for use in the next cycle.

The flow chart of FIG. 4 may be modified to service Group III accountsby retiring a set proportion or amount of the balance instead ofamortizing the balance. Since such a retirement is of a "preselectedamount," the final iteration may include a lump sum payment of thebalance which remains. That is, the principal retirement of Group IIIaccounts, being a preselected amount, would not necessarily track theinflation adjustments, thus potentially leaving an unretired portion duethe account holder at maturity.

Matching Deposit Accounts with Loan Accounts

During times of high inflation, an inflation-indexed deposit account,standing alone, would present a substantial risk to the capitalstructure of the institution that receives and services them. This isthe result of the fact that more inflated dollars must necessarily bedeposited into the account by the institution at each iteration periodto maintain a constant account balance in terms of real dollars. Toremove this risk, the present invention provides a system for matchingthe foregoing inflation-adjusted deposit accounts with loan accounts.

Referring to FIG. 5, is shown in representative fashion, a flow diagramof the matching process. Investors or Depositors 12 direct DepositAccount Manager 14, for example, a pension fund manager, to file Noticeof Availability 24 ("NA") of funds for inflation-adjusted depositaccounts 2 with organizing company 10. Alternatively, those investors 26not represented by account manager 14 file NA 24 directly withoriganizing company 10. Similarly, borrowers 18 or loan account managers22, for example, mortgage brokers, file Notice of Demand 28 ("ND") forinflation-adjusted loan funds. Both ND 28 and NA 24 include suchparameters as amount of funds available or demanded term of account,duration of account, and type of account including its proposedschedule. Independent variables such as credit rating of borrower 18,characteristics of project for which funds are sought and underwritingconstraints if any, may be included in the ND 28. Organizing company 10,or alternatively intermediary 6 lists the characteristics on paralleldatabases, DFADF 16 and LFADF 20, representing supply funds and demandfunds, respectively.

Accounts are matched by matching parameters stored in DFADF 16 or LFDDF20 to create a Hierarchical Matching File 30 ("HML"). Parameters of thedemand and supply files 16,20 are thus matched according to hierarchalconsiderations generally including account amount, term and duration asprimary considerations. A plurality of loans may be matched with asingle deposit, or a plurality of deposits with a single loan, in orderto match the overall amounts. In situations where a plurality of loansare matched with a plurality of deposits, the various amounts aretotaled to achieve a total balance match.

Duration is a mathematical expression of when the average time-weighteddollar is either received or paid out of a particular account. Itprovides information concerning the size and timing of the paymentstream or cash flow of the account. Moreover, duration embodies anexpression of the relation of payment or disbursement size toyield-to-maturity of the account. The mathematical expression of theformula is: ##EQU4## Where D=duration, r=yield-to maturity, t=time ofcash flow, m=term and CF₊ =cash flow at time, t.

When this formula is applied for example, to a $1,000standard-fixed-payment deposit account with a five-year term and 12%total annual interest, the calculated duration is 4.04 years. That is,the average time-weighted dollar is paid out at 4.04 years. In general,group I accounts will show greater cash flows early in their termsrelative to group II accounts, therefore group I accounts will oftenhave lower durations than scheduled group II accounts. The duration ofGroup III and IV accounts will generally fall between that of Group Iand II accounts. Therefore, duration is an expression of the averagecash flow of the account. In matching the duration of a loan accountwith that of a deposit account, or in matching the average duration of aplurality of accounts, the cash flows of deposit and loan accounts somatched will compensate for one another, thereby protecting the capitalstructure of the intermediary.

After matching is achieved by the HMF 20, borrowers 18 and depositors12, or their respective account managers 22,14, are notified of thematch and deposit and loan accounts 2,4 are formalized 32 followed bythe transfer of funds 34 to intermediary 6. Accounts will then beserviced by the account management dataprocessor 8.

EXAMPLE I Servicing of Inflation--Adjusted Deposit Accounts

Data processing and post-data processing activities are utilized toservice the Group IV deposit accounts of the present invention byperiodically adjusting the outstanding balance of the account to reflectthe effects of inflation on it.

a. Mechanics of a Typical Group IV Deposit Account

Refering to FIG. 6 is shown a representative example of a hypotheticalGroup IV deposit account in terms of its year-end balance and adjustmentamortization. The deposit account therein depicted assumes an initialbalance of $100, a fixed annual interest rate of 4%, a steady inflationrate 8% (e.g., an 8% steady annual increase in the CPI), a 30-year termwith 30 annual iteration periods, and a schedule which retires the fixedinterest component as it accrues (i.e., annually).

As will be appreciated by those skilled in the art, the deposit accountof the present example is somewhat similar to a 30-year annuity which issupplemented annually with additional annuities to reflect the higherprice level in the economy. Thus, the fixed amortization rate becomes areal interest rate because the depositor also receives additionalinterest equal to the inflation rate multiplied by the account balance.Each iteration period, if there is a positive increase in the CPI,additional inflation interest accrues but it is payable over theremaining term as an additional stream of annuity payments. The depositaccount can be viewed as 30 separate annuities with an original annuityand potentially 29 annual inflation additions.

The depositor's total receipts (including principal and interest) on thedeposit account increase in lock-step with the CPI so that the paymentthe depositor receives is constant in real purchasing power. In thisgraphical presentation the inflation rate is a steady 8% for the entire30-year term of the account so the depositor's payment increases by 8%each year. The deposit balance changes on any distribution date sinceinflation interest is added to the deposit balance and the annuitypayment retires a portion of the existing principal with each iteration.FIG. 7 depicts the total principal and interest payment of thehypothetical account of FIG. 6. As will be appreciated, the payments tothe account holder increase substantially over time. FIG. 8 graphicallydisplays the "bookable" income components of the periodic retirements ofthe hypothetical deposit account. Note that the interest payments on theoriginal deposit decreases in "straight-line" fashion with time, whereasthe bookable accrued inflation adjustment and interest on accruedadjustment peak at approximately year 21 before declining.

b. Comparing The Effects of Anticipated Levels of Inflation on theAccount

The data processing methodology of the present invention may be used tocompare the cash flow characteristics of a particular type of depositaccount for selected or anticipated levels of inflation. For example,Table I, which was generated using the servicing scheme of FIG. 4,numerically displays the cash flow characteristics of the typical GroupIV account of the present example (i.e., it assumes an 8% level ofinflation and a 4% fixed interest rate). Depicted therein are theperiodic (i.e., yearly) bookable inflation adjustment, interest earned,deposit returned (i.e., principal retired), year-end account balance andthe net cash flow.

Table II was also generated using the flow scheme of FIG. 4 and displaysthe cash flow characteristics of the same Group IV account but includingan anticipated inflation rate of 6% instead of 8%. All other variables,including the term, deposit amount and fixed interest rate, are thesame. The comparative cash flows for 8% and 6% inflation are displayedgraphically in FIG. 9. Note

that there is a significant increase in payments in the later years ofthe Group IV account term with 8% when compared to 6% inflation.

                  TABLE I                                                         ______________________________________                                        DEPOSIT AMOUNT:                                                                            $100.00  INTEREST RATE:                                                                              4.00%                                       TERM IN YEARS: 30 INFLATION: 8.00%                                          ANALYSIS FOR DEPOSITOR:                                                                 BOOK-                                                                  ABLE                                                                          INFLATION INTER-                                                              ADJUST- EST DEPOSIT YEAR END CASH                                            YEAR MENT EARNED RETURNED BALANCE FLOW                                      ______________________________________                                        0                                100.0000                                       1 8.0000 4.0000 1.7830 106.2170 5.7830                                        2 8.4974 4.2487 2.0054 112.7090 6.2540                                        3 9.0167 4.5084 2.2556 119.4701 6.7640                                        4 9.5576 4.7788 2.5374 126.4903 7.3162                                        5 10.1192 5.0596 2.8546 133.7550 7.9142                                       6 10.7004 5.3502 3.2117 141.2436 8.5619                                       7 11.2995 5.6497 3.6140 148.9292 9.2637                                       8 11.9143 5.9572 4.0671 156.7764 10.0243                                      9 12.5421 6.2711 4.5777 164.7408 10.8487                                      10 13.1793 6.5896 5.1531 172.7669 11.7427                                     11 13.8214 6.9107 5.8018 180.7865 12.7125                                     12 14.4629 7.2315 6.5334 188.7160 13.7648                                     13 15.0973 7.5486 7.3587 196.4546 14.9073                                     14 15.7164 7.8582 8.2901 203.8809 16.1483                                     15 16.3105 8.1552 9.3418 210.8496 17.4971                                     16 16.8680 8.4340 10.5301 217.1875 18.9640                                    17 17.3750 8.6875 11.8734 222.6891 20.5609                                    18 17.8151 8.9076 13.3934 227.1108 22.3009                                    19 18.1689 9.0844 15.1147 230.1650 24.1992                                    20 18.4132 9.2066 17.0665 231.5117 26.2731                                    21 18.5209 9.2605 19.2828 230.7498 28.5433                                    22 18.4600 9.2300 21.8042 227.4055 31.0342                                    23 18.1924 9.0962 24.6798 220.9181 33.7760                                    24 17.6735 8.8367 27.9704 210.6212 36.8071                                    25 16.8497 8.4248 31.7537 195.7173 40.1785                                    26 15.6574 7.8287 36.1347 175.2399 43.9634                                    27 14.0192 7.0096 41.2673 147.9919 48.2769                                    28 11.8393 5.9197 47.4090 112.4222 53.3287                                    29 8.9938 4.4969 55.1089 66.3071 59.6058                                      30 5.3046 2.6523 66.3071 5.3046 68.9594                                     ______________________________________                                         * THE BOOKABLE INFLATION ADJUSTMENT FOR THE 30Th YEAR WILL BE ADDED TO TH     OTHER CASH FLOW COMPONENTS AND PAID AT THAT TIME, SO THE FINAL BALANCE        WILL BE 0.                                                               

                  TABLE II                                                        ______________________________________                                        DEPOSIT AMOUNT:                                                                            $100.00  INTEREST RATE:                                                                              4.00%                                       TERM IN YEARS: 30 INFLATION: 6.00%                                          ANALYSIS FOR DEPOSITOR:                                                                 BOOK-                                                                  ABLE                                                                          INFLATION INTER-                                                              ADJUST- EST DEPOSIT YEAR END CASH                                            YEAR MENT EARNED RETURNED BALANCE FLOW                                      ______________________________________                                        0                                100.0000                                       1 6.0000 4.0000 1.7830 104.2170 5.7830                                        2 6.2530 4.1687 1.9676 108.5024 6.1363                                        3 6.5101 4.3401 2.1715 112.8411 6.5116                                        4 6.7705 4.5136 2.3966 117.2150 6.9102                                        5 7.0329 4.6886 2.6452 121.6026 7.3338                                        6 7.2962 4.8641 2.9199 125.9789 7.7840                                        7 7.5587 5.0392 3.2234 130.3142 8.2626                                        8 7.8189 5.2126 3.5588 134.5743 8.7713                                        9 8.0745 5.3830 3.9294 138.7194 9.3124                                        10 8.3232 5.5488 4.3392 142.7034 9.8879                                       11 8.5622 5.7081 4.7922 146.4733 10.5004                                      12 8.7884 5.8589 5.2933 149.9684 11.1523                                      13 8.9981 5.9987 5.8478 153.1187 11.8465                                      14 9.1871 6.1247 6.4614 155.8445 12.5861                                      15 9.3507 6.2338 7.1408 158.0543 13.3746                                      16 9.4833 6.3222 7.8934 159.6442 14.2156                                      17 9.5787 6.3858 8.7276 160.4953 15.1134                                      18 9.6297 6.4198 9.6528 160.4722 16.0726                                      19 9.6283 6.4189 10.6798 159.4207 17.0987                                     20 9.5652 6.3768 11.8209 157.1651 18.1977                                     21 9.4299 6.2866 13.0904 153.5046 19.3770                                     22 9.2103 6.1402 14.5051 148.2097 20.6453                                     23 8.8926 5.9284 16.0849 141.0174 22.0133                                     24 8.4610 5.6407 17.8542 131.6243 23.4949                                     25 7.8975 5.2650 19.8439 119.6779 25.1089                                     26 7.1807 4.7871 22.0958 104.7627 26.8829                                     27 6.2858 4.1905 24.6706 86.3779 28.8611                                      28 5.1827 3.4551 27.6710 63.8896 31.1262                                      29 3.8334 2.5556 31.3184 36.4045 33.8740                                      30 2.1843 1.4562 36.4045 2.1843 37.8607                                     ______________________________________                                         * THE BOOKABLE INFLATION ADJUSTMENT FOR THE 30th YEAR WILL BE ADDED TO TH     OTHER CASH FLOW COMPONENTS AND PAID AT THAT TIME, SO THE FINAL BALANCE        WILL BE 0.                                                               

Thus, by inserting various anticipated inflation rates into theservicing schemes of the present invention, the effects of inflation onthe resultant cash flows of the account may be ascertained. In thismanner, the effects of such accounts on the capital structure of theaccount holder may be anticipated and both cases prove that thedepositor would receive a stream of payments with constant buying powerat any time in the future regardless of the behavior of inflation.

EXAMPLE II The Partially-Hedged Program

A lending institution, under certain circumstances, may desire to matchan inflation-adjusted deposit account with a standard-fixed-paymentmortgage loan. Under such a "partially-hedged" match, the net cash flowto the institution during periods of lower inflation will be higher thanduring periods of high inflation. That is, the standard-fixed-paymentloan will generate a fixed cash flow whereas the deposit account must besatisfied with the inflation-adjusted dollars.

For example, FIG. 10 displays the buildup of positive cash flow from anoriginal $100 inflation-adjusted Group IV deposit account and astandard-fixed-payment loan program which are tracked for 30 years underthe assumption that the deposits were used to fund 5-year loans at10.5%, payable monthly, with principal amortized in equal semiannualpayments and with net cash flows reinvested immediately on the samebasis. These loan proceeds are compared to the cash obligations on thedeposit account.

These calculations from a simultaneous deposit-loan transaction do notinclude any of the costs of loan administration or the servicing costsof the deposit account, which is minimal with large institutionaldeposits. The servicing fee has been netted out but there is no need todeduct the customary costs of a retail deposit activity from thisspread.

Though the net interest spread is quite large not all of this cash flowneeds to be immediately reflected as income for tax purposes since theinflation adjustment interest must be recognized as an expense foraccounting and tax purposes. The accrual of the interest expense has theeffect of reducing taxable income in the early years of the depositaccount term. The accrual of the inflation adjustment interest to thedeposit account balance is accurately reflected in the intermediaries'deposit liabilities and also in the intermediaries' net worth.

Table III shows both asset and liability balance adjustments through the30-year term on the original $100 deposit and loan as well as the netreturn on assets. Even with only a 10.5% loan fixed rate, the net returnon assets is reasonably high at 1.11% and grows over time. Tables IV andV convey the same information under an assumed loan rate of 11.5% and12.5%, respectively. As one of skill in the art will appreciate, thesehigher loan rates substantially increase the net return on assets.

Interest Rate Risk

The actual net income and return on assets would depend on the spread ofthe loan rate above the cost of funds. The cost of funds in turn dependson the inflation rate. In a fixed rate market with a 10.5% prime rateand less than 4% inflation the spread is quite large and would result ina return on assets of approximately 2.5% if all funds were loaned out atprime.

An acceleration in inflation rates causes financial markets to adjust tohigher inflation rates by increasing interest rates. If a surge ofinflation were to occur this would work to the intermediary's benefit.Since short-term loan rates are highly sensitive to an acceleration ofinflation, revenues should respond immediately whereas the inflationinterest cost accrues but is paid out smoothly over time.

Furthermore, the market's response to inflation causes bank loan ratesto increase more than the inflation rate. For example, in 1979 wheninflation rates peaked out at 13%, prime reached 21% which would havesubstantially increased the bank's cash flows and after tax spreads.Acceleration of inflation and interest rates insulates the commercialbank from the payment shock of higher money market CD rates and widensthe spread.

Generally with high interest rates and tight monetary policy there is ayield curve inversion in which short-term rates exceed long-term rates.This too would open enormous profit opportunities for the commercialintermediary since the inflation-adjusted deposit funds are borrowedlong and lent short.

The more significant risk to the commercial intermediary is from areduction of inflation and interest rates. This, however, presents nospecial difficulties because the inflation interest is scaled down tothe actual inflation rate. From the lending side lower

                                      TABLE III                                   __________________________________________________________________________    AB DEPOSIT INFORMATION        LOAN INFORMATION                                __________________________________________________________________________    INITIAL DEPOSIT     $100      TERM & AMORTIZATION   OPTIONAL                    TERM (years) 30 LOAN & REINVESTMENT RATE (1) 10.50%                           REAL INTEREST RATE 3.50% ORIGINATION FEE 0.00%                                TTH ARRANGEMENT FEE 1.00% BANK INFORMATION                                    TTH ANNUAL SERVICE FEE 1.00% MARGINAL TAX RATE 0.00%                            DIVIDEND PAYOUT RATIO 0.00%                                               __________________________________________________________________________    BALANCE SHEET          CASH FLOWS                RATIOS                           AB DEPOSIT                                                                           LOAN  NET   INTEREST                                                                            AB DEPOSIT                                                                           NET CASH                                                                            NET INCOME                                                                           RETURN ON                                                                            CAPITAL TO                                                                     YEAR BALANCE                                                                 BALANCE WORTH (2)                                                             INCOME (3)                                                                    SERVICE FLOW (3)                                                              (2) AVG ASSETS                                                                ASSET RATIO           __________________________________________________________________________      0 $100.000 $99.000                                                            1 103.063 103.182 $0.119 $10.910 $6.468 $4.442 $1.119 1.11% 0.12%                                                                    2 106.109                                                                    107.519 1.410                                                                 11.371 6.775                                                                  4.596 1.291 1.23                                                              1.31                    3 109.122 112.014 2.892 11.849 7.097 4.752 1.482 1.35 2.58                    4 112.084 116.673 4.589 12.344 7.434 4.911 1.696 1.48 3.93                    5 114.976 121.499 6.524 12.858 7.786 5.072 1.935 1.62 5.37                    6 117.773 126.497 8.725 13.390 8.154 5.236 2.201 1.78 6.90                    7 120.449 131.672 11.223 13.940 8.539 5.402 2.498 1.93 8.52                   8 122.976 137.027 14.051 14.511 8.941 5.570 2.828 2.10 10.25                  9 125.321 142.567 17.246 15.101 9.361 5.740 3.195 2.29 12.10                  10 127.447 148.297 20.850 15.711 9.801 5.910 3.604 2.48 14.06                 11 129.313 154.221 24.908 16.343 10.260 6.082 4.058 2.68 16.15                12 130.872 160.343 29.471 16.996 10.741 6.255 4.563 2.90 18.38                13 132.074 166.668 34.594 17.670 11.243 6.427 5.123 3.13 20.76                14 132.861 173.200 40.340 18.367 11.768 6.599 5.746 3.38 23.29                15 133.168 179.944 46.776 19.087 12.317 6.770 6.436 3.65 25.99                16 132.925 186.904 53.978 19.830 12.892 6.939 7.203 3.93 28.88                17 132.052 194.083 62.031 20.597 13.493 7.105 8.053 4.23 31.96                18 130.459 201.485 71.026 21.389 14.122 7.267 8.995 4.55 35.25                19 128.048 209.114 81.066 22.204 14.781 7.423 10.040 4.89 38.77                                                                      20 124.707                                                                   216.970 92.264                                                                23.045 15.472                                                                 7.573 11.198 5.26                                                             42.52                   21 120.312 225.057 104.745 23.911 16.198 7.713 12.481 5.65 46.54                                                                     22 114.724                                                                   233.372 118.648                                                               24.802 16.962                                                                 7.840 13.903 6.07                                                             50.84                   23 107.786 241.913 134.127 25.718 17.768 7.951 15.479 6.51 55.44                                                                     24 99.320                                                                    250.671 151.351                                                               26.660 18.621                                                                 8.039 17.224 6.99                                                             60.38                   25 89.123 259.632 170.509 27.625 19.530 8.094 19.158 7.51 65.67                                                                      26 76.959                                                                    268.770 191.811                                                               28.612 20.509                                                                 8.104 21.301 8.06                                                             71.37                   27 62.549 278.036 215.488 26.619 21.578 8.042 23.677 8.66 77.50                                                                      28 45.539                                                                    287.342 241.802                                                               30.641 22.781                                                                 7.859 26.314 9.31                                                             84.15                   29 25.438 296.490 271.051 31.666 24.226 7.440 29.249 10.02 91.42                                                                     30 1.272 304.877                                                             303.605 32.674                                                                26.341 6.333                                                                  32.553 10.83          __________________________________________________________________________                                                            99.58                  (1) THESE RATES ARE TREATED AS CONSTANTS; HOWEVER, IF INFLATION INCREASES     LENDING RATES ALSO RISE.                                                      (2) THE NET WORTH AND INCOME COLUMNS ARE NET OF LOAN ORIGINATION AND          SERVICING COSTS, FEES, TAXES AND DIVIDENDS AT THE STATED RATES.               (3) PRINCIPAL REPAYMENTS ARE PRESUMED TO BE REINVESTED AND THEREFORE ARE      EXCLUDED FROM THE CASH FLOW ANALYSIS.                                    

                                      TABLE IV                                    __________________________________________________________________________    INITIAL DEPOSIT     $100      TERM & AMORTIZATION   OPTIONAL                    TERM (years) 30 LOAN & REINVESTMENT RATE (1) 11.50%                           REAL INTEREST RATE 3.50% ORIGINATION FEE 0.00%                                INFLATION RATE (1) 5.00%                                                      TTH ARRANGEMENT FEE 1.00% BANK INFORMATION                                    TTH ANNUAL SERVICE FEE 1.00% MARGINAL TAX RATE 0.00%                            DIVIDEND PAYOUT RATIO 0.00%                                               __________________________________________________________________________    BALANCE SHEET          CASH FLOWS                RATIOS                           AB DEPOSIT                                                                           LOAN  NET   INTEREST                                                                            AB DEPOSIT                                                                           NET CASH                                                                            NET INCOME                                                                           RETURN ON                                                                            CAPITAL TO                                                                     YEAR BALANCE                                                                 BALANCE WORTH (2)                                                             INCOME (3)                                                                    SERVICE FLOW (3)                                                              (2) AVG ASSETS                                                                ASSET RATIO           __________________________________________________________________________      0 $100.000 $99.000                                                            1 103.063 104.277 $1.214 $12.005 $6.468 $5.537 $2.214 2.18% 1.16%                                                                    2 106.109                                                                    109.887 3.778                                                                 12.645 6.775                                                                  5.869 2.564 2.39                                                              3.44                    3 109.122 115.858 6.736 13.325 7.097 6.228 2.958 2.62 5.81                    4 112.084 122.221 10.137 14.049 7.434 6.615 3.401 2.86 8.29                   5 114.976 129.010 14.035 14.820 7.786 7.035 3.898 3.10 10.88                  6 117.773 136.263 18.490 15.644 8.154 7.490 4.455 3.36 13.57                  7 120.449 144.020 23.570 16.523 8.539 7.985 5.080 3.63 16.37                  8 122.976 152.328 29.351 17.464 8.941 8.523 5.781 3.90 19.27                  9 125.321 161.238 35.917 18.471 9.361 9.110 6.566 4.19 22.28                  10 127.447 170.808 43.361 19.552 9.801 9.751 7.444 4.48 25.39                 11 129.313 181.101 51.789 20.712 10.260 10.452 8.427 4.79 28.60                                                                      12 130.872                                                                   192.188 61.316                                                                21.960 10.741                                                                 11.219 9.527 5.10                                                             31.90                   13 132.074 204.148 72.074 23.305 11.243 12.062 10.758 5.43 35.30                                                                     14 132.861                                                                   217.067 84.207                                                                24.755 11.768                                                                 12.987 12.133                                                                 5.76 38.79                                                                     15 133.168                                                                   231.046 97.877                                                                26.321 12.317                                                                 14.004 13.670                                                                 6.10 42.36                                                                     16 132.925                                                                   246.191 113.266                                                               28.016 12.892                                                                 15.125 15.389                                                                 6.45 46.01                                                                     17 132.052                                                                   262.626 130.574                                                               29.853 13.493                                                                 16.360 17.308                                                                 6.80 49.72                                                                     18 130.459                                                                   280.485 150.026                                                               31.846 14.122                                                                 17.724 21.847                                                                 7.16 53.49                                                                     19 128.048                                                                   299.921 171.873                                                               34.011 14.781                                                                 19.231 21.847                                                                 7.53 57.31                                                                     20 124.707                                                                   321.101 196 .394                                                              36.368 15.472                                                                 20.896 24.521                                                                 7.90 61.16                                                                     21 120.312                                                                   344.212 223.900                                                               38.936 16.198                                                                 22.738 27.507                                                                 8.27 65.05                                                                     22 114.724                                                                   369.465 254.741                                                               41.739 16.962                                                                 24.777 30.840                                                                 8.64 68.95                                                                     23 107.786                                                                   397.088 289.302                                                               44.801 17.768                                                                 27.034 34.561                                                                 9.02 72.86                                                                     24 99.320                                                                    427.337 328.017                                                               48.151 18.621                                                                 29.530 38.715                                                                 9.39 76.76                                                                     25 89.123                                                                    460.492 371.369                                                               51.819 19.530                                                                 32.288 43.352                                                                 9.77 80.65                                                                     26 76.959                                                                    496.856 419.897                                                               55.839 20.509                                                                 35.330 48.528                                                                 10.14 84.51                                                                    27 62.549                                                                    536.572 474.203                                                               60.248 21.578                                                                 38.671 54.306                                                                 10.51 88.35                                                                    28 45.539                                                                    580.503 534.963                                                               65.086 22.781                                                                 42.305 60.760                                                                 10.88 92.16                                                                    29 25.438                                                                    628.376 602.938                                                               70.391 24.226                                                                 46.165 67.975                                                                 11.25 95.95                                                                    30 1.272 680.286                                                             679.014 76.197                                                                26.341 49.855                                                                 76.076 11.63          __________________________________________________________________________                                                            99.81                  (1) THESE RATES ARE TREATED AS CONSTANTS; HOWEVER, IF INFLATION INCREASES     LENDING RATES ALSO RISE.                                                      (2) THE NET WORTH AND INCOME COLUMNS ARE NET OF LOAN ORIGINATION AND          SERVICING COSTS, FEES, TAXES AND DIVIDENDS AT THE STATED RATES.               (3) PRINCIPAL REPAYMENTS ARE PRESUMED TO BE REINVESTED AND THEREFORE ARE      EXCLUDED FROM THE CASH FLOW ANALYSIS.                                    

                                      TABLE V                                     __________________________________________________________________________    INITIAL DEPOSIT     $100      TERM & AMORTIZATION   OPTIONAL                    TERM (years) 30 LOAN & REINVESTMENT RATE (1) 12.50%                           REAL INTEREST RATE 3.50% ORIGINATION FEE 0.00%                                INFLATION RATE (1) 5.00%                                                      TTH ARRANGEMENT FEE 1.00% BANK INFORMATION                                    TTH ANNUAL SERVICE FEE 1.00% MARGINAL TAX RATE 0.00%                            DIVIDEND PAYOUT RATIO 0.00%                                               __________________________________________________________________________    BALANCE SHEET          CASH FLOWS                RATIOS                           AB DEPOSIT                                                                           LOAN  NET   INTEREST                                                                            AB DEPOSIT                                                                           NET CASH                                                                            NET INCOME                                                                           RETURN ON                                                                            CAPITAL TO                                                                     YEAR BALANCE                                                                 BALANCE WORTH (2)                                                             INCOME (3)                                                                    SERVICE FLOW (3)                                                              (2) AVG ASSETS                                                                ASSET RATIO           __________________________________________________________________________      0 $100.000 $99.000                                                            1 103.063 105.381 $2.318 $13.109 $6.468 $6.641 $3.318 3.25% 2.20%                                                                    2 106.109                                                                    112.301 6.192                                                                 13.954 6.775                                                                  7.179 3.874 3.56                                                              5.51                    3 109.122 119.818 10.696 14.870 7.097 7.773 4.504 3.88 8.93                   4 112.084 127.998 15.914 15.866 7.434 8.432 5.218 4.21 12.43                  5 114.976 136.916 21.940 16.949 7.786 9.163 6.026 4.55 16.02                  6 117.773 146.654 28.881 18.130 8.154 9.976 6.941 4.90 19.69                  7 120.449 157.307 36.858 19.419 8.539 10.881 7.977 5.25 23.43                 8 122.976 168.982 46.005 20.830 8.941 11.889 9.147 5.61 27.23                 9 125.321 181.797 56.476 22.376 9.361 13.015 10.470 5.97 31.07                10 127.447 195.888 68.441 24.073 9.801 14.272 11.965 6.34 34.94                                                                      11 129.313                                                                   211.408 82.095                                                                25.939 10.260                                                                 15.678 13.654                                                                 6.70 38.83                                                                     12 130.872                                                                   228.528 97.656                                                                27.994 10.741                                                                 17.253 15.561                                                                 7.07 42.73                                                                     13 132.074                                                                   247.444 115.370                                                               30.261 11.243                                                                 19.018 17.714                                                                 7.44 46.62                                                                     14 132.861                                                                   268.374 135.514                                                               32.766 11.768                                                                 20.997 20.144                                                                 7.81 50.49                                                                     15 133.168                                                                   291.568 158.400                                                               35.537 12.317                                                                 23.220 22.886                                                                 8.17 54.33                                                                     16 132.925                                                                   317.305 184.380                                                               38.608 12.892                                                                 25.717 25.980                                                                 8.53 58.11                                                                     17 132.052                                                                   345.903 213.851                                                               42.016 13.493                                                                 28.524 29.471                                                                 8.89 61.82                                                                     18 130.459                                                                   377.720 247.261                                                               45.803 14.122                                                                 31.681 33.410                                                                 9.23 65.46                                                                     19 128.048                                                                   413.160 285.113                                                               50.016 14.781                                                                 35.235 37.852                                                                 9.57 69.01                                                                     20 124.707                                                                   452.681 327.974                                                               54.709 15.472                                                                 39.237 42.862                                                                 9.90 72.45                                                                     21 120.312                                                                   496.799 376.487                                                               59.942 16.198                                                                 43.744 48.513                                                                 10.22 75.78                                                                    22 114.724                                                                   546.096 431.372                                                               65.784 16.962                                                                 48.822 54.885                                                                 10.53 78.99                                                                    23 107.786                                                                   601.231 493.445                                                               72.312 17.768                                                                 54.544 62.072                                                                 10.82 82.07                                                                    24 99.320                                                                    662.942 563.622                                                               79.613 18.621                                                                 60.992 70.177                                                                 11.10 85.02                                                                    25 89.123                                                                    732.062 642.939                                                               87.784 19.530                                                                 68.254 79.317                                                                 11.37 87.83                                                                    26 76.959                                                                    809.524 732.565                                                               96.937 20.509                                                                 76.428 89.626                                                                 11.63 90.49                                                                    27 62.549                                                                    893.365 833.817                                                               107.194 21.578                                                                85.616 101.252                                                                11.87 93.02                                                                    28 45.539                                                                    993.723 948.184                                                               118.693 22.871                                                                95.912 114.367                                                                12.10 95.42                                                                    29 25.438                                                                    1102.790 1077.352                                                             131.585 24.226                                                                107.359 129.168                                                               12.32 97.69                                                                    30 1.272                                                                     1224.530 1223.258                                                             146.027 26.341                                                                119.686 145.906                                                               12.54 99.90           __________________________________________________________________________     (1) THESE RATES ARE TREATED AS CONSTANTS; HOWEVER, IF INFLATION INCREASES     LENDING RATES ALSO RISE.                                                      (2) THE NET WORTH AND INCOME COLUMNS ARE NET OF LOAN ORIGINATION AND          SERVICING COSTS, FEES, TAXES AND DIVIDENDS AT THE STATED RATES.               (3) PRINCIPAL REPAYMENTS ARE PRESUMED TO BE REINVESTED AND THEREFORE ARE      EXCLUDED FROM THE CASH FLOW ANALYSIS.                                    

inflation rates do tend to lower interest rates but not quite one forone, as sceptical lenders demand inflation risk premiums against thepossibility of renewed future inflation.

If deflation were actually to occur the inflation-adjusted Group IVdeposit account still calls for interest payments based on the fixedamortization rate and deflation results in credits which carry forwardto offset future inflation interest. While the deposit rate at a minimumis equal to the fixed amortization rate of 3.5%, loan rates should besufficient to cover the fixed amortization rate.

EXAMPLE III The Fully-Hedged Program

a. Hedging the Interest Rate Risk

It is possible to fully hedge the inflation interest cost by lendingfunds received by the intermediary in deposit accounts on aninflation-adjusting loan rate basis. An intermediary could, for example,make funds available to coporate borrowers for medium-term corporateneeds of between 3 and 10 years. The present invention provides aninflation-adjusting loan account similar in structure to theinflation-adjusted deposit but, preferrably, with a shorter maturity.Again, the lengthy deferrals on the deposit and the shorter repaymentschedules on the loan allows the intermediary bank to capitalize on thetime value of the more rapid principal repayment on the assets than isneeded to service the liabilities. The return on assets is magnified bythese deferrals.

Such hedging would eliminate real interest rate risk during the term ofthe account having the shortest maturity, but would not achieve a"matched" asset and liability balance for the intermediary. Thisvariation of the hedged program is not fully matched because there aredissimilar terms to maturity of the loan accounts as compared to thedeposit accounts. Thus, when the term of both accounts are dissimilar,some degree of risk will still be present for the intermediary. This isbecause upon renewal of the account having the shorter term, a variationin fixed or "real" interest rates may have developed in the market. Andpotentially, the intermediary could find itself with unbalanced cashflows. The different terms would also leave the intermediary with anunmatched balance sheet. However, it may nevertheless be desirable forintermediaries to hedge inflation-adjusted loan and deposit accountswithout fully matching terms because certain intermediaries may beunable to solicit sufficient numbers of long-term loan accounts withadequate underwriting characteristics to satisfy a fully matchedprogram.

b. The Fully Hedged "Matched" Program

It is also possible to exactly match the inflation-adjusting depositwith an inflation-adjusting loan of equal maturity which would totallyreduce the financial risk from variable inflation rates and yield curveinversions. In this case, the intermediary would be servicing long-termloans, most likely to finance real estate or other durable plant andequipment. With similar maturities of both the loan and depositaccounts, the intermediary can earn a constant spread over its cost ofmoney with matching deposit and loan contracts. This would fully hedgethe real interest rate risk. These loans would also generate substantialfront end fees for the intermediary.

Table VI illustrates the effect on the balance sheet and cash flow of anintermediary when the intermediary takes the excess cash flow generatedby the matched accounts and reinvests this in new loan accounts withsimilar terms to the original account. In contrast to Table III, thereare generally origination fees associated with such long term loans,which would be equal to the arrangement fees charged by the organizer.It can be observed in Table VI that the total net worth generated bysuch a fully matched program would be more advantageous to theintermediary than the total net worth generated by a situation such asdepicited in Table III, in spite of the fact that receipts by theintermediary would be substantially lower in the initial years thanthose generated by the partially hedged programs.

Again, in contrast to the situation of a partially hedged program, theexact match between the loan and the deposit account results inidentical net cash flow and net income, without the need to rely uponthe current tax code in order to generate an additional advantage to theintermediary. The fully matched program will also have in effect ahigher initial return on average assets. It should be pointed out thatTable VI assumes that the income from the loan accounts flows into theintermediary on a monthly basis and the payments due the deposit accountholder must be made on a yearly basis. In this period of time, theintermediary has had the opportunity to invest these funds at the statedfloat investment rate.

Table VII shows the situation under a fully hedged matched programwherein the loan account and deposit account both have an initialbalance of $100 and a term of 30 years. In Table VII, no assumption ismade regarding any reinvestment by the intermediary of the incomeobtained from the loan account. Rather, it demonstrates what the yearlyincome to the intermediary would be before covering the annual servicefee to the organizer under the column titled Spread Retained. Both theloan and deposit accounts have identical values throughout the term ofthe accounts. These values are shown under the column titled AdjustedPrincipal. The cash income generated to the intermediary is shown inTable VII under the column titled ABML Payments. This income has twocomponents: the principal payment and the interest payment. The interestpayment in turn is split into the portion of interest that is passedthrough to the deposit account holder and the portion that is retainedby the intermediary institution shown under the column titled SpreadRetained.

The advantages of such a loan program to the intermediary are futherdepicted in Table VII in the remaining column, where in this case anassumption has been made that a property with a market value of $125 isfinanced by the loan account, and the loan granted by the intermediaryrepresents 80% of the value of such a property. Table VII further makesan assumption that the property increases in value over time in directproportion to inflation and as a result if such a property generatedoperating net income before debt service at a rate of 9.5% of its valuesuch operating income would increase over time also in direct proportionto inflation.

The next column of Table VII titled Loan to Value Ratio shows how eachyear the principal repayment which takes place reduces the loan to valueratio from the initial 80% to levels of 60% by year 11, 40% by year 19,21% by year 25 and essentially 0 by the end of the 30th year. The debtcoverage ratio which is calculated by dividing the net operating incomeof a property by the payments due for debt service thereon is muchhigher than that consistently found in such loans by those skilled inthe art, with a resulting value of 1.49 in the first year whereas theindustry standards usually range between 1.0 and 1.2.

To further emphasize the advantages to the intermediaries, it should bepointed out that this debt coverage ratio of 1.49 is improved insubsequent years to levels of 1.55 by year 14, 1.64 by year 21, 1.75 byyear 27, etc. The last column shows that in terms of "constant dollars,"the payments made by the borrower to service the loan over time areactually reduced from an initial 7.55 to a level of 6.2 by the 30thyear. As the present invention demonstrates, the income paid to thedeposit holder maintains a constant purchasing power, and yet in termsof constant purchasing power the stream of payments that must be made bythe borrower decreases over time.

Tables VIII and IX show the behavior of the loan to value of ratios anddebt coverage ratios over time when the property financed by the loanaccount cannot maintain its value at the same pace as prices increase.Table VIII presents the case of the property appreciating at a rate of1% less than the rate of inflation. In this case, the loan to valueratio is also constantly reduced and the debt coverage ratio no longershows a continuous improvement over time but nevertheless reaches aminimum value of 1.32 in the last year. Yet this is substantially higherthan the norm found in the industry. Table IX shows the case where theproperty fails to keep up with the rate of inflation by 2% per annum. Inthis case, the loan to value rate will initially show a slight increaseand thereafter decreases although at a slower pace. The debt coverageratio in this case decreases at a faster

rate and yet by the 30th year is still higher than 1. This means thatthe income generated by the property will fully cover the cost of debtservice associated with the loan at that time.

                                      TABLE VI                                    __________________________________________________________________________    AB DEPOSIT INFORMATION       LOAN INFORMATION                                 __________________________________________________________________________      INITIAL DEPOSIT $100 TERM & AMORTIZATION 30                                   TERM (years) 30 CONSTANT INTEREST RATE 2.50%                                  REAL INTEREST RATE 3.50% ORIGINATION FEE 2.00%                                INFLATION RATE 5.00% FLOAT INVESTMENT NOMINAL RATE (1) 10.00%                 TTH ARRANGEMENT FEE* 2.00% S & L INFORMATION                                  TTH ANNUAL SERVICE FEE 1.00% MARGINAL TAX RATE 0.00%                            DIVIDEND PAYOUT RATIO 0.00%                                               __________________________________________________________________________    BALANCE SHEET           CASH FLOWS              RATIOS                             AB DEPOSIT                                                                           LOAN NET WORTH                                                                            ABML                                                                              AB DEPOSIT                                                                           NET CASH                                                                            NET INCOME                                                                           RETURN ON                                                                            CAPITAL TO                                                                     YEAR BALANCE                                                                 BALANCE (2) PMTS                                                              SERVICE FLOW (2)                                                              AVG ASSETS ASSET                                                              RATIO                  __________________________________________________________________________      0 $100.000 $100.000                                                           1 103.063 104.976 $1.913 8.351 6.437 $1.913 1.913 1.87% 1.82%                 2 106.109 110.160 4.051 8.883 6.745 2.138 2.138 1.99 3.68                     3 109.122 115.561 6.439 9.455 7.067 2.388 2.388 2.12 5.57                     4 112.084 121.191 9.107 10.072 7.404 2.668 2.668 2.25 7.51                    5 114.976 127.063 12.087 10.737 7.757 2.981 2.981 2.40 9.51                   6 117.773 133.190 15.418 11.456 8.126 3.330 3.330 2.56 11.58                  7 120.449 139.588 19.138 12.232 8.512 3.721 3.721 2.73 13.71                  8 122.976 146.272 23.296 13.073 8.916 4.157 4.157 2.91 15.93                  9 125.321 153.262 27.941 13.983 9.338 4.645 4.645 3.10 18.23                  10 127.447 160.578 33.131 14.970 9.780 5.190 5.190 3.31 20.63                 11 129.313 168.243 38.930 16.041 10.242 5.800 5.800 3.53 23.14                12 130.872 176.283 45.411 17.206 10.725 6.481 6.481 3.76 25.76                13 132.074 184.727 52.653 18.473 11.231 7.242 7.242 4.01 28.50                14 132.861 193.606 60.745 19.853 11.760 8.093 8.093 4.28 31.38                15 133.168 202.957 69.789 21.358 12.314 9.044 9.044 4.56 34.39                16 132.925 212.821 79.896 23.001 12.894 10.107 10.107 4.86 37.54                                                                    17 132.052                                                                   223.243 91.191                                                                24.796 13.501                                                                 11.295 11.295 5.18                                                            40.85                    18 130.459 234.274 103.815 26.761 14.138 12.624 12.624 5.52 44.31                                                                   19 128.048                                                                   245.971 117.923                                                               28.914 14.805                                                                 14.109 14.109 5.88                                                            47.94                    20 124.707 258.400 133.693 31.275 15.506 15.769 15.769 6.25 51.74                                                                   21 120.312                                                                   271.631 151.319                                                               33.868 16.242                                                                 17.626 17.626 6.65                                                            55.71                    22 114.724 285.745 171.021 36.720 17.018 19.702 19.702 7.07 59.85                                                                   23 107.786                                                                   300.830 193.044                                                               39.860 17.837                                                                 22.023 22.023 7.51                                                            64.17                    24 99.320 316.983 217.663 43.325 18.706 24.619 24.619 7.97 68.67                                                                    25 89.123 334.309                                                            245.187 47.156                                                                19.632 27.523                                                                 27.523 8.45 73.34                                                              26 76.959 352.918                                                            275.958 51.402                                                                20.630 30.772                                                                 30.772 8.96 78.19                                                              27 62.549 372.914                                                            310.365 56.129                                                                21.722 34.407                                                                 34.407 9.48 88.45                                                              28 45.539 394.381                                                            348.842 61.428                                                                22.951 38.477                                                                 38.477 9.48 83.23                                                              29 25.438 417.319                                                            391.881 67.466                                                                24.427 43.039                                                                 43.039 10.60 93.90       30 1.272 441.327 440.055 74.758 26.583 48.175 48.175 11.22 99.71            __________________________________________________________________________     (1) THIS RATE IS TREATED AS A CONSTANT: HOWEVER, IF INFLATION INCREASES       FLOAT INVESTMENT RATE ALSO RISES.                                             (2) THE NET WORTH AND INCOME COLUMNS ARE NET OF LOAN ORIGINATION AND          SERVICING COSTS, FEES, TAXES AND DIVIDENDS AT THE STATED RATE                 *THE ARRANGEMENT FEE WOULD EQUAL THE ORIGINATION FEE                     

                                      TABLE VII                                   __________________________________________________________________________    LOAN AMOUNT  $100.00 BUILDING VALUE $125.00 BUILDING ROR                                                                              9.50%                   TERM IN YEARS 30 INFLATION 5.00% SPREAD 2.50%                                 INTEREST RATE 3.50% APPRECIATION RATE 5.00%                                 __________________________________________________________________________    ANALYSIS FOR DEPOSITORY INSTITUTION                                                               INTEREST          BUILD-   BUILD-      REAL                  ABML PRINCIPAL INTEREST PASS- SPREAD ADJUSTED ING L/V ING DEBT PAY-                                                                    YEAR PMTS                                                                    PAYMENT                                                                       PAYMENT THROUG                                                                RETAINED                                                                      PRINCIPAL                                                                     VALUE RATIO                                                                   INCOME                                                                        COVERAGE           __________________________________________________________________________                                                               MENT                                                                           0                                                                            100.000                                                                       125.0000                                                                       1 7.9371                                                                     1.9371 6.0000                                                                 3.5000 2.5000                                                                 103.0629                                                                      131.2500                                                                      0.7852 11.8750                                                                1.4961 7.5592                                                                  2 8.2909                                                                     2.1072 6.1838                                                                 3.6072 2.5766                                                                 106.1089                                                                      137.8125                                                                      0.7700 12.4688                                                                1.4323 7.5201                                                                  3 8.6588                                                                     2.2922 6.3665                                                                 3.7138 2.6527                                                                 109.1221                                                                      144.7031                                                                      0.7541 13.0922                                                                1.4400 7.4798                                                                  4 9.0410                                                                     2.4937 6.5473                                                                 3.8193 2.7281                                                                 112.0845                                                                      151.9383                                                                      0.7377 13.7468                                                                1.4481 7.4381                                                                  5 9.4381                                                                     2.7130 6.7251                                                                 3.9230 2.8021                                                                 114.9756                                                                      159.5352                                                                      0.7207 14.4341                                                                1.4565 7.3950                                                                  6 9.8504                                                                     2.9519 6.8985                                                                 4.0241 2.8744                                                                 117.7727                                                                      167.5120                                                                      0.7031 15.1558                                                                1.4653 7.3505                                                                  7 10.2783                                                                    3.2120 7.0664                                                                 4.1220 2.9443                                                                 120.4492                                                                      175.8876                                                                      0.6848 15.9136                                                                1.4745 7.3046                                                                  8 10.7222                                                                    3.4953 7.2269                                                                 4.2157 3.0112                                                                 122.9763                                                                      184.6819                                                                      0.6659 16.7093                                                                1.4842 7.2572                                                                  9 11.1825                                                                    3.8039 7.3786                                                                 4.3042 3.0744                                                                 125.3212                                                                      193.9160                                                                      0.6463 17.5448                                                                1.4942 7.2572                                                                  10 11.6595                                                                   4.1402 7.1593                                                                 4.3862 3.1330                                                                 127.4471                                                                      203.6118                                                                      0.6259 18.4220                                                                1.5048 7.1579                                                                  11 12.1535                                                                   4.5067 7.6468                                                                 4.4606 3.1862                                                                 129.3128                                                                      213.6049                                                                      0.6049 19.3431                                                                1.5158 7.1059                                                                  12 12.6649                                                                   4.9062 7.7588                                                                 4.5259 3.2328                                                                 130.8723                                                                      224.4820                                                                      0.5830 20.3103                                                                1.5273 7.0523                                                                  13 13.1941                                                                   5.3418 7.8523                                                                 4.8505 3.2718                                                                 132.0741                                                                      234.7061                                                                      0.5603 21.3258                                                                1.5393 6.9971                                                                  14 13.7414                                                                   5.8170 7.9244                                                                 4.6226 3.3019                                                                 132.8608                                                                      247.4914                                                                      0.5368 22.3921                                                                1.5519 6.9403                                                                  15 14.3071                                                                   6.3354 7.9717                                                                 4.6501 3.3215                                                                 133.1684                                                                      259.8660                                                                      0.5125 23.5117                                                                1.5651 6.8820                                                                  16 14.8916                                                                   6.9015 7.9901                                                                 4.6609 3.3292                                                                 132.9254                                                                      272.8593                                                                      0.4872 24.6873                                                                1.5789 6.8220                                                                  17 15.4952                                                                   7.5197 7.9755                                                                 4.6524 3.3231                                                                 132.0520                                                                      286.5023                                                                      0.4609 25.9216                                                                1.5932 6.7605                                                                  18 16.1185                                                                   8.1954 7.9231                                                                 4.6218 3.3013                                                                 130.4592                                                                      300.8274                                                                      0.4337 27.2177                                                                1.6082 6.6976                                                                  19 16.7619                                                                   8.9344 7.8276                                                                 4.5661 3.2615                                                                 128.0478                                                                      315.8688                                                                      0.4054 28.5786                                                                1.6238 6.6333                                                                  20 17.4263                                                                   9.7434 7.6829                                                                 4.4817 3.2012                                                                 124.7068                                                                      331.6622                                                                      0.3760 30.0075                                                                1.6400 6.5678                                                                  21 18.1126                                                                   10.6302 7.4824                                                                4.3647 3.1177                                                                 120.3120                                                                      348.2453                                                                      0.3455 31.5079                                                                1.6567 6.5014                                                                  22 18.8223                                                                   11.6036 7.2187                                                                4.2109 3.0078                                                                 114.7240                                                                      365.6576                                                                      0.3137 33.0833                                                                1.6740 6.4344                                                                  23 19.5578                                                                   12.6743 6.8834                                                                4.0153 2.8681                                                                 107.7858                                                                      383.9405                                                                      0.2807 34.7375                                                                1.6916 6.3674                                                                  24 20.3224                                                                   13.8553 6.4672                                                                3.7725 2.6946                                                                 99.3198                                                                       403.1375                                                                      0.2464 36.4743                                                                1.7093 6.3013                                                                  25 21.1222                                                                   15.1630 5.9592                                                                3.4762 2.4830                                                                 89.1229                                                                       423.2944                                                                      0.2105 38.2981                                                                1.7268 6.2374                                                                  26 21.9671                                                                   16.6198 5.3474                                                                3.1193 2.2281                                                                 76.9592                                                                       444.4591                                                                      0.1732 40.2130                                                                1.7434 6.1781                                                                  27 22.8762                                                                   18.2587 4.6176                                                                2.6936 1.9240                                                                 62.5485                                                                       466.6820                                                                      0.1340 42.2236                                                                1.7578 6.1274                                                                  28 23.8994                                                                   20.1365 3.7529                                                                2.1892 1.5637                                                                 45.5395                                                                       490.0161                                                                      0.0929 44.3348                                                                1.7675 6.1274                                                                  29 25.1105                                                                   22.3781 2.7324                                                                1.5939 1.1385                                                                 25.4383                                                                       514.5169                                                                      0.0494 46.5515                                                                1.7656 6.1005                                                                  30 26.9646                                                                   25.4383 1.5263                                                                0.8903 0.6360                                                                 1.2719                                                                        540.2428                                                                      0.0024 48.8791                                                                1.7264             __________________________________________________________________________                                                               6.2390         

                                      TABLE VIII                                  __________________________________________________________________________    LOAN AMOUNT  $100.00 BUILDING VALUE $125.00 BUILDING ROR                                                                              9.50%                   TERM IN YEARS 30 INFLATION 5.00% SPREAD 2.50%                                 INTEREST RATE 3.50% APPRECIATION RATE 5.00%                                 __________________________________________________________________________    ANALYSIS FOR DEPOSITORY INSTITUTION                                                               INTEREST          BUILD-   BUILD-      REAL                  ABML PRINCIPAL INTEREST PASS- SPREAD ADJUSTED ING L/V ING DEBT PAY-                                                                    YEAR PMTS                                                                    PAYMENT                                                                       PAYMENT THROUG                                                                RETAINED                                                                      PRINCIPAL                                                                     VALUE RATIO                                                                   INCOME                                                                        COVERAGE           __________________________________________________________________________                                                               MENT                                                                           0                                                                            100.000                                                                       125.000                                                                        1 7.9371                                                                     1.9371 6.0000                                                                 3.5000 2.5000                                                                 103.0629                                                                      130.0000                                                                      0.7928 11.8750                                                                1.4961 7.5592                                                                  2 8.2909                                                                     2.1072 6.1838                                                                 3.6072 2.5766                                                                 106.1089                                                                      135.2000                                                                      0.7848 12.3500                                                                1.4323 7.5201                                                                  3 8.6588                                                                     2.2922 6.3665                                                                 3.7138 2.6527                                                                 109.1221                                                                      140.6080                                                                      0.7761 12.8440                                                                1.4263 7.4798                                                                  4 9.0410                                                                     2.4937 6.5473                                                                 3.8193 2.7281                                                                 112.0845                                                                      146.2323                                                                      0.7665 13.3578                                                                1.4206 7.4381                                                                  5 9.4381                                                                     2.7130 6.7251                                                                 3.9230 2.8021                                                                 114.9756                                                                      152.0816                                                                      0.7560 13.8921                                                                1.4153 7.3950                                                                  6 9.8504                                                                     2.9519 6.8985                                                                 4.0241 2.8744                                                                 117.7727                                                                      158.1649                                                                      0.7446 14.4478                                                                1.4103 7.3505                                                                  7 10.2783                                                                    3.2120 7.0664                                                                 4.1220 2.9443                                                                 120.4492                                                                      164.4915                                                                      0.7323 15.0257                                                                1.4057 7.3046                                                                  8 10.7222                                                                    3.4953 7.2269                                                                 4.2157 3.0112                                                                 122.9763                                                                      171.0711                                                                      0.7189 15.6267                                                                1.4014 7.2572                                                                  9 11.1825                                                                    3.8039 7.3786                                                                 4.3042 3.0744                                                                 125.3212                                                                      177.9140                                                                      0.7044 16.2518                                                                1.3974 7.2083                                                                  10 11.6595                                                                   4.1402 7.1593                                                                 4.3862 3.1330                                                                 127.4471                                                                      185.0305                                                                      0.6888 16.9018                                                                1.3939 7.1579                                                                  11 12.1535                                                                   4.5067 7.6468                                                                 4.4606 3.1862                                                                 129.3128                                                                      192.4318                                                                      0.6720 17.5779                                                                1.3907 7.1059                                                                  12 12.6649                                                                   4.9062 7.7588                                                                 4.5259 3.2328                                                                 130.8723                                                                      200.1290                                                                      0.6539 18.2810                                                                1.3879 7.0523                                                                  13 13.1941                                                                   5.3418 7.8523                                                                 4.8505 3.2718                                                                 132.0741                                                                      208.1342                                                                      0.6346 19.0123                                                                1.3855 6.9971                                                                  14 13.7414                                                                   5.8170 7.9244                                                                 4.6226 3.3019                                                                 132.8608                                                                      216.4596                                                                      0.6138 19.7727                                                                1.3836 6.9403                                                                  15 14.3071                                                                   6.3354 7.9717                                                                 4.6501 3.3215                                                                 133.1684                                                                      225.1179                                                                      0.5915 20.5637                                                                1.3820 6.8820                                                                  16 14.8916                                                                   6.9015 7.9901                                                                 4.6609 3.3292                                                                 132.9254                                                                      234.1227                                                                      0.5678 21.3862                                                                1.3809 6.8220                                                                  17 15.4952                                                                   7.5197 7.9755                                                                 4.6524 3.3231                                                                 132.0520                                                                      243.4876                                                                      0.5423 22.2417                                                                1.3802 6.7605                                                                  18 16.1185                                                                   8.1954 7.9231                                                                 4.6218 3.3013                                                                 130.4592                                                                      253.2271                                                                      0.5152 23.1313                                                                1.3802 6.6705                                                                  19 16.7619                                                                   8.9344 7.8276                                                                 4.5661 3.2615                                                                 128.0478                                                                      263.3561                                                                      0.4862 24.0566                                                                1.3800 6.6333                                                                  20 17.4263                                                                   9.7434 7.6829                                                                 4.4817 3.2012                                                                 124.7068                                                                      273.8904                                                                      0.4553 25.0188                                                                1.3805 6.5678                                                                  21 18.1126                                                                   10.6302 7.4824                                                                4.3647 3.1177                                                                 120.3120                                                                      284.8460                                                                      0.4224 26.0196                                                                1.3813 6.5014                                                                  22 18.8223                                                                   11.6036 7.2187                                                                4.2109 3.0078                                                                 114.7240                                                                      296.2398                                                                      0.3873 27.0604                                                                1.3824 6.4344                                                                  23 19.5578                                                                   12.6743 6.8834                                                                4.0153 2.8681                                                                 107.7858                                                                      308.0894                                                                      0.3499 28.1428                                                                1.3836 6.3674                                                                  24 20.3224                                                                   13.8553 6.4672                                                                3.7725 2.6946                                                                 99.3198                                                                       320.4130                                                                      0.3100 29.2685                                                                1.3848 6.3013                                                                  25 21.1222                                                                   15.1630 5.9592                                                                3.4762 2.4830                                                                 89.1229                                                                       333.2295                                                                      0.2675 30.4392                                                                1.3857 6.2374                                                                  26 21.9671                                                                   16.6198 5.3474                                                                3.1193 2.2281                                                                 76.9592                                                                       346.5587                                                                      0.2221 31.6568                                                                1.3857 6.1781                                                                  27 22.8762                                                                   18.2587 4.6176                                                                2.6936 1.9240                                                                 62.5485                                                                       360.4211                                                                      0.1735 32.9231                                                                1.3838 6.1274                                                                  28 23.8994                                                                   20.1365 3.7529                                                                2.1892 1.5637                                                                 45.5395                                                                       374.8379                                                                      0.1215 34.2400                                                                1.3781 6.0940                                                                  29 25.1105                                                                   22.3781 2.7324                                                                1.5939 1.1385                                                                 25.4383                                                                       389.8314                                                                      0.0653 35.6096                                                                1.3636 6.1005                                                                  30 26.9646                                                                   25.4383 1.5263                                                                0.8903 0.6360                                                                 1.2719                                                                        405.4247                                                                      0.0031 37.0340                                                                1.3206             __________________________________________________________________________                                                               6.2390         

                                      TABLE IX                                    __________________________________________________________________________    LOAN AMOUNT  $100.00 BUILDING VALUE $125.00 BUILDING ROR                                                                              9.50%                   TERM IN YEARS 30 INFLATION 5.00% SPREAD 2.50%                                 INTEREST RATE 3.50% APPRECIATION RATE 3.00%                                 __________________________________________________________________________    ANALYSIS FOR DEPOSITORY INSTITUTION                                                               INTEREST          BUILD-   BUILD-      REAL                  ABML PRINCIPAL INTEREST PASS- SPREAD ADJUSTED ING L/V ING DEBT PAY-                                                                    YEAR PMTS                                                                    PAYMENT                                                                       PAYMENT THROUG                                                                RETAINED                                                                      PRINCIPAL                                                                     VALUE RATIO                                                                   INCOME                                                                        COVERAGE           __________________________________________________________________________                                                               MENT                                                                           0                                                                            100.000                                                                       125.0000                                                                       1 7.9371                                                                     1.9371 6.000                                                                  3.5000 2.5000                                                                 103.0629                                                                      128.7500                                                                      0.8005 11.8750                                                                1.4961 7.5592                                                                  2 8.2909                                                                     2.1072 6.1838                                                                 3.6072 2.5766                                                                 106.1089                                                                      132.6125                                                                      0.8001 12.2313                                                                1.4323 7.5201                                                                  3 8.6588                                                                     2.2922 6.3665                                                                 3.7138 2.6527                                                                 109.1221                                                                      136.5909                                                                      0.7989 12.5982                                                                1.4126 7.4798                                                                  4 9.0410                                                                     2.4937 6.5473                                                                 3.8193 2.7281                                                                 112.0845                                                                      140.6886                                                                      0.7967 12.9761                                                                1.3934 7.4381                                                                  5 9.4381                                                                     2.7130 6.7251                                                                 3.9230 2.8021                                                                 114.9756                                                                      144.9093                                                                      0.7934 13.3654                                                                1.3749 7.3950                                                                  6 9.8504                                                                     2.9519 6.8985                                                                 4.0241 2.8744                                                                 117.7725                                                                      149.2565                                                                      0.7891 13.7664                                                                1.3568 7.3505                                                                  7 10.2783                                                                    3.2120 7.0664                                                                 4.1220 2.9443                                                                 120.4492                                                                      153.7342                                                                      0.7835 14.1794                                                                1.3394 7.3046                                                                  8 10.7222                                                                    3.4953 7.2269                                                                 4.2157 3.0112                                                                 122.9763                                                                      158.3463                                                                      0.7766 14.6048                                                                0.3224 7.2572                                                                  9 11.1825                                                                    3.8039 7.3786                                                                 4.3042 3.0744                                                                 125.3212                                                                      163.0966                                                                      0.7684 15.0429                                                                1.3060 7.2083                                                                  10 11.6595                                                                   4.1402 7.1593                                                                 4.3862 3.1330                                                                 127.4471                                                                      167.9895                                                                      0.7587 15.4942                                                                1.2902 7.1579                                                                  11 12.1535                                                                   4.5067 7.6468                                                                 4.4606 3.1862                                                                 129.3128                                                                      173.0292                                                                      0.7473 15.9590                                                                1.2749 7.1059                                                                  12 12.6649                                                                   4.9062 7.7588                                                                 4.5259 3.2328                                                                 130.8723                                                                      178.2201                                                                      0.7343 16.4378                                                                1.2601 7.0523                                                                  13 13.1941                                                                   5.3418 7.8523                                                                 4.8505 3.2718                                                                 132.0741                                                                      183.5667                                                                      0.7195 16.9309                                                                1.2458 6.9971                                                                  14 13.7414                                                                   5.8170 7.9244                                                                 4.6226 3.3019                                                                 132.8608                                                                      189.0737                                                                      0.7027 17.4388                                                                1.2321 6.9403                                                                  15 14.3071                                                                   6.3354 7.9717                                                                 4.6501 3.3215                                                                 133.1684                                                                      194.7459                                                                      0.6838 17.9620                                                                1.2189 6.8820                                                                  16 14.8916                                                                   6.9015 7.9901                                                                 4.6609 3.3292                                                                 132.9254                                                                      200.5883                                                                      0.6627 18.5009                                                                1.2062 6.8220                                                                  17 15.4952                                                                   7.5197 7.9755                                                                 4.6524 3.3231                                                                 132.0520                                                                      206.6060                                                                      0.6391 19.0559                                                                1.1940 6.7605                                                                  18 16.1185                                                                   8.1954 7.9231                                                                 4.6218 3.3013                                                                 130.4592                                                                      212.8041                                                                      0.6130 19.6276                                                                1.1822 6.6976                                                                  19 16.7619                                                                   8.9344 7.8276                                                                 4.5661 3.2615                                                                 128.0478                                                                      219.1883                                                                      0.5842 20.2164                                                                1.1710 6.6333                                                                  20 17.4263                                                                   9.7434 7.6829                                                                 4.4817 3.2012                                                                 124.7068                                                                      225.7639                                                                      0.5524 20.8229                                                                1.1601 6.5678                                                                  21 18.1126                                                                   10.6302 7.4824                                                                4.3647 3.1177                                                                 120.3120                                                                      232.5368                                                                      0.5174 21.4476                                                                1.1496 6.5014                                                                  22 18.8223                                                                   11.6036 7.2187                                                                4.2109 3.0078                                                                 114.7240                                                                      239.5129                                                                      0.4790 22.0910                                                                1.1395 6.4344                                                                  23 19.5578                                                                   12.6743 6.8834                                                                4.0153 2.8681                                                                 107.7858                                                                      246.6983                                                                      0.4369 22.7537                                                                1.1295 6.3674                                                                  24 20.3224                                                                   13.8553 6.4672                                                                3.7725 2.6946                                                                 99.3198                                                                       254.0993                                                                      0.3909 23.4363                                                                1.1096 6.3013                                                                  25 21.1222                                                                   15.1630 5.9592                                                                3.4762 2.4830                                                                 89.1229                                                                       261.7222                                                                      0.3045 24.1394                                                                1.1096 6.2374                                                                  26 21.9671                                                                   16.6198 5.3474                                                                3.1193 2.2281                                                                 76.9592                                                                       269.5739                                                                      0.2855 24.8636                                                                1.0989 6.1781                                                                  27 22.8762                                                                   18.2587 4.6176                                                                2.6936 1.9240                                                                 62.5485                                                                       277.6611                                                                      0.2253 25.6095                                                                1.0869 6.1274                                                                  28 23.8994                                                                   20.1365 3.7529                                                                2.1892 1.5637                                                                 45.5395                                                                       285.9910                                                                      0.1592 26.3778                                                                1.0720 6.0940                                                                  29 25.1105                                                                   22.3781 2.7324                                                                1.5939 1.1385                                                                 25.4383                                                                       294.5707                                                                      0.0864 27.1691                                                                1.0505 6.1005                                                                  30 26.9646                                                                   25.4383 1.5263                                                                0.8903 0.6360                                                                 1.2719                                                                        303.4078                                                                      0.0042 27.9842                                                                1.0076             __________________________________________________________________________                                                               6.2390         

While matching will reduce the interest rate exposure of theintermediary it will not increase credit risk. In fact, because theborrower's debt service on an inflation-adjusting loan with a 300 basispoint markup is quite modest at 8.25 per $100, there is substantial debtcoverage.

This option is especially attactive to intermediaries that undertakeinterim construction loans on real estate because the long-terminflation-adjusting deposit accounts with its potential to finance along-term inflation-adjusting Mortgage loans would provide permanenttakeout money for the intermediary. This would be true either by designor necessity. In this case the intermediary enters a fully matched-bookprogram on a long-term rather than a short-term basis.

In order to maintain the longevity of the match, the deposit and loanaccount would provide for substantial penalties for early withdrawal andcorresondingly, the loan account would carry a substantial prepaymentpenalty. These penalties do not significantly detract from the appeal ofboth the deposit and loan accounts.

The foregoing invention has been described in terms of preferredembodiments. However, those of skill in the art will recognize that manyvariations of such embodiments exist. Such variations are intended to bewithin the scope of the present invention and the appended claims.

What is claimed is:
 1. A method of managing financial accountscomprising:providing a plurality of deposit accounts with a financialinstitution; adjusting the amount in each deposit account as a functionof a rate of inflation; providing at least one loan account with saidfinancial institution using funds deposited with the financialinstitution; adjusting the amount in the loan account as a unction of arate of inflation using an account data processor, paying the depositaccounts; and receiving repayment of the loan account by said financialinstitution in a manner where the funds in the loan account obtain arate of return responsive to a rate of inflation.
 2. The method of claim1, wherein said loan account comprises a bond, a certificate of deposit,or an annuity account.
 3. The method of claim 1, herein said depositaccount comprises a bond, a certificate of deposit, or an annuityaccount.
 4. The method of claim 1, the loan account having a loanprincipal component and a loan accrual component.
 5. The method of claim4, including the substep of determining the amount in the loan accrualcomponent as a function of the rate of inflation.
 6. The method of claim4, including the substep of determining the amount in the loan principalcomponent as a function of the rate of inflation.
 7. The method of claim1, said deposit accounts being payable on demand to each depositor. 8.The method of claim 1, wherein said rates of inflation are the same andcomprise the Consumer Price Index (CPI).
 9. A method for an institutionto manage at least part of a program to provide a depositor of funds arate of return on said funds variable with a rate of inflation,comprising:providing a deposit account by the institution for receivingsaid funds from said depositor; allocating at least a potion of saidfunds for obtaining an asset whose rate of return adjusts withinflation; using said allocated funds to obtain said asset whose returnadjusts with inflation and is determined using a dataprocessor, saidasset comprising a financial instrument having an obligated rate ofreturn indexed to a rate of inflation; and paying said depositor a rateof return on funds relived based on a rate of inflation.
 10. The methodof claim 9, including the step of periodically accounting for a portionof said rate of return of said financial instrument to said allocatedfunds.
 11. The method of claim 10, the financial instrument having aprincipal component and an accrual component, whereby said retiring stepincludes the substeps of redeeming the principal component and theaccrual component.
 12. The method of claim 11, whereby the principalcomponent is periodically adjusted based on a rate of inflation.
 13. Themethod of claim 11, whereby the accrual component is periodicallyadjusted based on a rate of inflation.
 14. The method of claim 9,including the step of retiring said financial instrument.
 15. The methodof clam 14, said retiring step including the substeps of amortizing thefinancial instrument over a term.
 16. The method of claim 14, saidretiring step including the substep of receiving at maturity a lump sumpayment corresponding to the financial instrument from the maker of thefinancial instrument.
 17. The method of claim 9, wherein said financialinstrument comprises a bond, a certificate of deposit, or an annuityaccount.
 18. The method of claim 9, wherein said deposit accountcomprises a bond, a certificate of deposit, or an annuity account. 19.The method of claim 9, wherein said deposit account comprises afinancial instrument with an obligated rate of indexed to a rate ofinflation.
 20. The method of claim 9, wherein each rate of inflation isthe same.
 21. The method of claim 9, wherein at least one of said ratesof inflation is the Consumers Price Index (CPI).
 22. A method for aninstitution to manage at least part of a program to provide a depositorof funds a rate of return on said funds variable with a rate ofinflation, comprising:providing a deposit account by the institution forreceiving said funds from said depositor; allocating at least a portionof said funds for obtaining an asset whose rate of return adjusts withinflation, such adjustments being determined using a data processor;using said allocated funds to obtain said asset whose return adjustswith inflation, said asset comprising a mortgage secured by real estate;and paying said depositor a rate of return on funds received based on arate of inflation.
 23. The method of claim 22, including the step ofamortizing the mortgage over a term.
 24. The method of claim 22, whereinsaid deposit account comprises a bond, a certificate of deposit, or anannuity account.
 25. A method for an institution to manage at least patof a program to provide a depositor of funds a rate of return on saidfunds comprising:providing a deposit account by the institution forreceiving said funds from said depositor; paying said depositor a rateof return on funds received based on a rate of inflation; allocating atleast a portion of said funds for obtaining an asset whose rate ofreturn adjusts with inflation; using said allocated funds to obtain saidasset whose value adjusts with inflation, said asset comprising afinancial instrument having a principal component periodically adjustedfor inflation using a data processor and an accrual component includingan interest rate fixed for a term; said financial instrumentpayinginterest payments based on the inflation adjusted principal component;paying the inflation-adjusted principal component at the end of theterm.
 26. The method of claim 25, wherein the rate of inflation isdetermined using the Consumer Price Index (CPI).
 27. The method of claim25, wherein the financial instrument is a bond, a certificate of depositor an annuity account.
 28. The method of claim 25, wherein the depositaccount is a bond, a certificate of deposit or an annuity account.